What causes the Bankruptcy Court to dismiss a case with prejudice?
According to the Code, a case can be dismissed with prejudice only for “cause.” This begs the question, what constitutes “cause”? Unfortunately, the Code does not define “cause” for dismissal purposes. However, one Circuit Court of Appeals has held that “bad faith” is “cause” for a dismissal with prejudice of a Chapter 13 bankruptcy case.
How does the Bankruptcy Court determine whether a debtor has acted in Bad Faith?
The Circuit Court said that a finding of bad faith based on egregious behavior justifies dismissal with prejudice. The debtor’s bad faith acts are usually required to prejudice the creditors as well. In determining whether bad faith exists, a bankruptcy court should consider the following factors:
- Whether the debtor misrepresented facts in his/her petition or plan, unfairly manipulated the Code, or otherwise filed his/her Chapter 13 petition or plan in an inequitable manner.
- The debtor’s history of filings and dismissals.
- Whether the debtor only intended to defeat state court litigation.
- Whether egregious behavior is present.
The bankruptcy court does need to not find all of the factors present, but must determine whether there is enough evidence to make a finding of “bad faith” based on the factors. A finding of bad faith does not require fraud, malice, or malfeasance by the debtor.
What Does This Look Like Practically?
The four most prevalent reasons that courts dismiss cases with prejudice are as follows: multiple case filings that do not complete, perjury, failure of the debtor to abide by court orders, and failure of the debtor to appear at the court hearings without a valid excuse. While this list is not exhaustive, it is a good starting point for anyone who may be curious about the dismissal process.
How could this effect me?
Often individuals will try to file a bankruptcy without the assistance of an attorney. They file the minimum paperwork necessary to create a case and then have a deadline to complete the process. They are unable to complete the necessary paperwork and the case is dismissed. They then try again but they still don't understand what is required. This time the Court will not dismiss the case but have a hearing to see why the case should not be dismissed with prejudice. The individual doesn't attend the hearing because they don't understand what is going on. The Judge finds their failure to appear a further indication that they are not proceeding in "good faith" and dismisses the case with prejudice. The individual still needs the bankruptcy protection so they seek help from an attorney, only to find out that they can not file a new case for several months. By then it may be to late to save the house or car they were trying to keep.
Don't let this happen to you. Before you try to file a bankruptcy, contact Hampton Roads Legal Services at 757-276-6555. We can help you through the process so that you obtain the relief that you need.
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